4 ms·

What corporate structure let’s you keep money in the company like that? Is it complicate to set up and manage?

Nextgrid 5y ago
Limited companies in most jurisdictions I believe. In the UK: Your company pays corporation tax based on profits during the tax year. Whatever money is left can be disbursed to employees, shareholders, etc. You as an individual pay tax based on your yearly income. There are several tax brackets depending on how much you make, as well as "free" brackets (you don't pay anything on the first ~12k of employment income, and there's an equivalent for dividends but much smaller). Anything you pay yourself from your company then incurs this individual-level taxation, but since you can choose how much you pay yourself you can only pay the minimum (to stay within "acceptable" tax brackets) and keep the rest in the company for next year or for company-level investments (new hardware, expanding the business, etc). For limited-company contractors, the usual strategy is to pay yourself ~12k/year of salary and the rest is in the form of dividends which you can vary depending on your situation & needs. Is it complex to manage? Depends on the jurisdiction; some are more evolved than others. In the UK I find it super easy and while I can bitch all day about the amount of tax I'm paying, at least the documentation is quite clear and they make it super easy to manage everything. I do have an accountant but at this point it's mostly for advice and "just in case" than anything else - day to day is handled by FreeAgent and I just have to make sure the data is entered properly and the software takes care of the rest.
pc86 5y ago
If you have a US LLC that's a pass-through (or an S Corp taxed similarly) it's not possible. In the US at least it's only really possible if you're paying corporate and personal income taxes, which for approximately 99% of freelancers will be much more expensive than just paying the taxes in the year you make the money.

Limited companies in most jurisdictions I believe. In the UK: Your company pays corporation tax based on profits during the tax year. Whatever money is left can be disbursed to employees, shareholders, etc. You as an individual pay tax based on your yearly income. There are several tax brackets depending on how much you make, as well as "free" brackets (you don't pay anything on the first ~12k of employment income, and there's an equivalent for dividends but much smaller). Anything you pay yourself from your company then incurs this individual-level taxation, but since you can choose how much you pay yourself you can only pay the minimum (to stay within "acceptable" tax brackets) and keep the rest in the company for next year or for company-level investments (new hardware, expanding the business, etc). For limited-company contractors, the usual strategy is to pay yourself ~12k/year of salary and the rest is in the form of dividends which you can vary depending on your situation & needs. Is it complex to manage? Depends on the jurisdiction; some are more evolved than others. In the UK I find it super easy and while I can bitch all day about the amount of tax I'm paying, at least the documentation is quite clear and they make it super easy to manage everything. I do have an accountant but at this point it's mostly for advice and "just in case" than anything else - day to day is handled by FreeAgent and I just have to make sure the data is entered properly and the software takes care of the rest.

pc86 5y ago

If you have a US LLC that's a pass-through (or an S Corp taxed similarly) it's not possible. In the US at least it's only really possible if you're paying corporate and personal income taxes, which for approximately 99% of freelancers will be much more expensive than just paying the taxes in the year you make the money.